Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14, Problem 5WNG
(a)
To determine
The real interest rate.
(b)
To determine
The real interest rate.
(c)
To determine
The real interest rate.
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Students have asked these similar questions
Suppose nominal interest rates increase from 8 percent to 10 percent, while inflation
increases from 3 percent to 12 percent. What then happens to the real interest rate?
It falls from 5 percent to -2 percent.
It rises from -2 percent to 5 percent.
It falls from 12 percent to 8 percent.
It rises from 8 percent to 12 percent.
1. Paul and Mary wanted to get married, and they wished to purchase a house for the new family. Therefore, they had arranged a meeting with a banker to know more about the mortgage details. They all expected that inflation will be 3 percent over the borrowing period, and the banker offered them a nominal interest rate of 6 percent. As it turns out, the inflation was 5 percent over the term of the loan.
a. What was the expected real interest rate?
b. What was the actual real interest rate?
c. Who benefited and who lost because of the unexpected inflation?
Assume that in Azerbaijan, Alyana deposits $5,000 in the bank for a single year. Given the following cases, answer the questions.
CASE 1: inflation = 0%, nominal interest rate = 5%
CASE 2: inflation = 5%, nominal interest rate = 10%
CASE 3: inflation = 10 %, nominal interest rate = 15%
In which case does the real value of your deposit grow the most?
Assume the tax rate is 30%.
In which case do you pay the most taxes?
Compute the after-tax nominal interest rate,then subtract inflation to get the after-tax real interest rate for both cases. Answer all parts
Chapter 14 Solutions
Macroeconomics
Ch. 14.1 - Prob. 1STCh. 14.1 - Prob. 2STCh. 14.1 - Prob. 3STCh. 14.2 - Prob. 1STCh. 14.2 - Prob. 2STCh. 14.3 - Prob. 1STCh. 14.3 - Prob. 2STCh. 14.3 - Prob. 3STCh. 14.4 - Prob. 1STCh. 14.4 - Prob. 2ST
Ch. 14.4 - Prob. 3STCh. 14 - Prob. 1QPCh. 14 - Prob. 2QPCh. 14 - Prob. 3QPCh. 14 - Prob. 4QPCh. 14 - Prob. 5QPCh. 14 - Prob. 6QPCh. 14 - Prob. 7QPCh. 14 - Prob. 8QPCh. 14 - Prob. 9QPCh. 14 - Prob. 10QPCh. 14 - Prob. 11QPCh. 14 - Prob. 12QPCh. 14 - Prob. 13QPCh. 14 - Prob. 14QPCh. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - Prob. 17QPCh. 14 - Prob. 18QPCh. 14 - Prob. 19QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNGCh. 14 - Prob. 7WNGCh. 14 - Prob. 8WNG
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Similar questions
- assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 1 percent. Calculate the real rate of interest.arrow_forwardYou put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate? 3.2 percent 2.4 percent 1.8 percent 4.4 percentarrow_forwardIf you deposit money in the bank for one year scenario 1: nominal interest rate = 10%, inflation rate = 0%  Scenario 2: normal interest rate = 25%, inflation rate = 15% In which scenario does the real value of the deposit grow the most? Explain.arrow_forward
- The two-year interest rate is 14.0% and the expected annual inflation rate is 7.0%. a.What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. If the expected rate of inflation suddenly rises to 9.0%, what does Fisher’s theory say about how the real interest rate will change? multiple choice Real rate decreases Real rate does not change Real rate increases b-2. If the expected rate of inflation suddenly rises to 9.0%, what will be the new nominal rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)arrow_forwardIf Dave loans funds at 2 percent while the inflation rate is 4 percent, his real rate of interest is -2 percent?arrow_forwardSuppose that in the country of Eurasia, the velocity of money is constant. Real GDP grows at a rate of 2 percent per year, the money stock grows by 8 percent per year and the nominal interest rate is 9 percent. What is a. The growth rate of nominal GDP? b. The inflation rate? c. The real interest rate?arrow_forward
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